Still, very much, the Lucky Country

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We’re so familiar with hearing Australia referred to as the Lucky Country that it often comes as a surprise to learn that Donald Horne, who coined the phrase in his 1964 book of the same name, meant it as a criticism. The opening sentence of his final chapter gives the book its name.

“Australia is a lucky country run mainly by second rate people who share its luck. It lives on other people’s ideas, and, although its ordinary people are adaptable, most of its leaders … so lack curiosity about the events that surround them that they are often taken by surprise.”

It was meant to be a damning account of the Australian political class, who Horne believed were bereft of original thinking and ideas at a time when, he believed, great economic and technological changes were taking place in other countries. Rather, instead of being innovative, Australians had been lucky, inheriting from the British a system of democracy and rule of law, alongside the wealth an entire continent of natural resources had to offer. He worried that Australia did not deserve its luck and that, unless it lifted its game, its good run would not last.

The start of superannuation

Today the phrase is almost a badge of national pride, used to describe everything from our lifestyle to our prosperity. Its modern meaning underpins a ‘she’ll be right’ positivity that Australians are famous for, a complete contrast to the message Horne was trying to deliver. (That his phrase was so misused was a source of great frustration for him: “I have had to sit through the most appalling rubbish as successive generations misapplied this phrase.”).

Horne was a committed republican, well before there was any real republican movement in Australia. Much of his criticism of Australia stemmed from these views, and his belief that Australia still looked to the UK for political ideas and leadership. His follow up book, “Death of the Lucky Country”, published in 1976, continued this theme.

If Australia was still looking to the UK for leadership in the 1970’s, the wry among us might note that the country clearly needed better glasses. In 1976, sinking under unsustainable budget deficits and runaway inflation, the UK needed to be rescued by the International Monetary Fund, in what was the Fund’s largest ever bailout.

Far from importing the militant unionism which engulfed British society in the 1970s and led to power rationing and a three-day work week, when the Union (Labor) party returned to power in Australia in 1983, it embarked upon some of the most forward-thinking reforms any developed country had seen. One of these, the Superannuation Guarantee reforms of 1992, addressed the future social-care funding crisis that all western countries were facing with their aging populations.

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From humble beginnings to wealth

Today, Australia is a far wealthier county than not just the UK, but also all the other nations Horne had in mind in his writings. That wealth, in the wonderfully Australian egalitarian model, is also far more equally spread than in any of those countries too. According to the annual Credit Suisse Global Wealth Report 2017, wealth per capita in Australia today is second only to that of Switzerland. (Given Switzerland’s position as a wealth manager to the world, we can comfortably remove it from our analysis on the basis that much of this wealth does not belong to the Swiss people as much as to Swiss ‘tax residents’). Average wealth per capita in Australia in 2017 was US$402,603. This is 97% higher than Germany, 53% higher than France, 45% higher than the UK, and 4% higher than the USA.

Far more impressive than these absolute wealth numbers is how well this wealth has been shared. The most common measure of inequality in economics is called the Gini coefficient. On a scale from 0 to 1, the Gini coefficient measures how unevenly wealth is spread across society. A coefficient of zero equates to all members of society having the same amount of wealth, while a coefficient of one equates to one individual owning all the wealth.

Under this measure, among large wealthy countries, Australia is second only to Japan in its wealth equality, with a Gini coefficient of 0.65 compared to Japan at 0.61. However, while Japan may be marginally more equal, this is considerably overshadowed by the fact that Australian average wealth per person is 79% higher.

Excluding Japan from the analysis the remaining results are striking. European nations like Germany, France, and Sweden, supposed paragons of social equality, have Gini coefficients of 0.79, 0.70, and 0.83 respectively. Whilst more capitalist leaning economic models such as the UK and the USA, have coefficients of 0.74 and 0.86. Australia also comfortably leads the few remaining socialist countries of the world. China, Venezuela, Vietnam and Laos have Gini coefficients of 0.79, 0.94, 0.75, and 0.85 respectively.

And where has all this wealth come from? Undeniably Australia’s natural resources laid a tremendous foundation. But too often this simple observation overshadows the bigger picture. The reliance on natural resource industries has been as much a curse as a blessing, tying large parts of the economy to a searing cycle of boom and bust. Australia was also not the only country rich in natural resources that began its life with British institutions. Much of Africa wears that crown, as do Canada, New Zealand, and India (Gini coefficients of 0.74, 0.72, and 0.83 respectively, wealth per person 36%, 16%, and 99% lower respectively).

In fact, the country that invented Wi-Fi, Google Maps and the ultrasound machine can call itself the clever county as much as the lucky country. Today one of Australia’s biggest export industries is education. As a percentage of GDP, Australia generates more revenue from exporting education to the world (1.2%) than both the USA (0.2%), and the UK (0.5%), despite these latter two countries’ famous universities. Australia attracts the best and brightest from around the world, many of whom, after studying, stay to call Australia home.

Wealth on its own is of little use if you don’t hang around to spend it. Here Australia continues to excel: average Australian life expectancy at 83 years is the fourth highest in the world (behind, in order, Japan, Switzerland, and Singapore). Today the Australian health care system is, like so many Australian institutions, the envy of the world. The Washington-based Commonwealth Fund recently ranked health outcomes under the Australian system as the best in the world, despite Australia spending less on healthcare as a % of GDP than all the other countries in its study.

Making your own luck

After 26 years of uninterrupted economic growth, the absolute size of the Australian economy at US$1.3 trillion (population 24 million) is now comparable to that of Russia (population 144 million), a nuclear power which occupies a permanent seat on the United Nations Security Council. Australians have a better quality of life than the Dolce Vita Italians (where youth unemployment is 35%, and debt to GDP is 133%) and better social mobility than the famously egalitarian French (a country which hasn’t run a balanced budget for 44 years). As a nation, we have created more wealth per person than the cold-hearted capitalist machine of the USA (an economic model which sees 14% of the population living in poverty) yet spread it more evenly than communist China.

A generation on, the fact that Horne’s critical tagline of Australia has been co-opted by the nation will be no great surprise to the red-headed among us called Blue. Dry humour runs deep within the ‘ordinary people’ Horne felt needed a new, more radical, society, as does another defining Australian trait: self-deprecation. There is no doubt that a little over a century ago Australia started its innings on a batting-friendly wicket, but luck isn’t what has put all the runs on the board. Whilst it perhaps has not been to Horne’s taste, Australia’s world-beating prosperity has been built on intelligent incrementalism, not revolution. A modest society that has quietly set about getting the job done.

 

Miles Staude is Portfolio Manager at the Global Value Fund (ASX:GVF), which he manages from London. 

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28 Responses to Still, very much, the Lucky Country

  1. Ashley February 1, 2018 at 11:25 AM #

    Hey, so we don’t just dig holes! – we also scrape it off the ground and dump it onto the nearest ship. I think Miles is mainly reinforcing Horne’s view that we have been blessed with a lot of luck.

  2. Steve February 1, 2018 at 11:57 AM #

    Great article.

    • Miles Staude February 4, 2018 at 11:59 PM #

      Thanks very much Steve

  3. Angela February 1, 2018 at 2:02 PM #

    Great article Miles, really insightful and well timed off the back of Australia Day. We’re such a small blip in the world economy and are often criticised for being small minded, but I think your last line sums it up – a modest society that has quietly set about getting the job done.

    • Miles Staude February 5, 2018 at 12:00 AM #

      Thanks for the kind words Angela

  4. Geoff Doyle February 1, 2018 at 2:07 PM #

    This is the sort of article which should be compulsory reading for every school kid and every revolutionary who wants Australia to change for the better. We are indeed a lucky country in the best sense of the words. There are few other countries in the world which have what we have here. Every time I travel overseas I reach the same conclusion!

    • Miles Staude February 4, 2018 at 11:27 PM #

      So true Geoff, thanks for the comment.

  5. Graham Hand February 1, 2018 at 2:07 PM #

    Thanks, Angela. Miles did originally send this as an Australia Day piece, but since I was on a beach in Queensland (another splendid example of our Lucky Country) at the time, we held it over for a week. G

  6. Greg Hollands February 1, 2018 at 3:29 PM #

    What a fantastic article which draws our current state of economic affairs into very sharp focus and is based on actual data from independent sources. A far cry from the usual drivel that is presented which is supposed to support various popular causes – ie, the rich are getting richer and the poor are getting poorer. This places the facts on the table – I shall keep a copy of this at hand when the discussions around the table get a little dreary!

    • Miles Staude February 5, 2018 at 12:02 AM #

      Thanks Greg! Keep it handy and spread the facts.

  7. Richard Brannelly February 1, 2018 at 4:27 PM #

    Thanks Miles for a fantastic well researched article that is a terrific counterweight to some of the current political class narrative about Australian society and all our supposed ills. No time to rest on our laurels though so we should all get back to quietly and modestly getting the job done.

    • Miles Staude February 5, 2018 at 12:45 AM #

      Thanks Richard

  8. Emma Davidson February 1, 2018 at 9:56 PM #

    Such a well researched article. Really appreciate someone doing the work to produce a balanced, fact based positive piece. The positivity is almost novel.

    • Miles Staude February 4, 2018 at 11:57 PM #

      Thanks for the kind words Emma

  9. Graeme February 1, 2018 at 11:17 PM #

    I was somewhat surprised by the inequality conclusions. For those, like me , who have never heard of the Gini Ratio (1912), I quote a few passages from the internet:-

    “The Gini index is the most frequently used inequality index. The reason for its popularity is that it is easy to understand how to compute the Gini index as a ratio of two areas in Lorenz curve diagrams. As a disadvantage, the Gini index only maps a number to the properties of a diagram, but the diagram itself is not based on any model of a distribution process. The meaning of the Gini index only can be understood empirically. Additionally the Gini does not capture where in the distribution the inequality occurs. As a result, two very different distributions of income can have the same Gini Index.”

    “One might say the Gini is oversensitive to changes in the middle, and undersensitive at the extremes. The coefficient doesn’t capture very explicitly changes in the top 10% – which has become the focus of much inequality research in the past 10 years – or the bottom 40%, where most poverty lies.”

    Doesn’t sound a great choice to me in this day and age. Were other measures of inequality considered? Perhaps the more modern Palma Ratio numbers? I’d be interested to see them for the quoted countries.

    • Miles Staude February 5, 2018 at 12:42 AM #

      Thanks for your comment Graeme, I appreciate the time.

      I used the Gini coefficient as the measure of inequality because, in economics, it is the most recognised and commonly used measure of statistical dispersion that represents the income or wealth distribution of a nation’s residents. It remains the most widely used indicator of measuring income inequality and I think that popularity might be explained by the high understandability (what the coefficient indicates and how it is computed), making explanation, communication and dissemination relatively easy.

      I had not heard of the Palma Index so thank you for bringing it to my attention, I shall definitely take a look.

  10. Paul Brouwer February 2, 2018 at 12:25 AM #

    A nice feel good article however it is at odds with our high personal level of debt and that we are always reliant on foreign capital for investment. Don’t our four big Banks have to borrow over seas to fund Australia’s expensive housing market ?

    • Miles Staude February 4, 2018 at 11:54 PM #

      Thanks Paul, the measures of wealth that I refer to in the article are net of all household debt i.e. what the average wealth per person is, after all debt is deducted. The data point about Australia being “reliant” on foreign capital is one that I see a lot too. What it means is that Australia runs a capital account surplus (which is equal to its current account deficit). Foreigners don’t invest into Australia (which is what is happening when Australian banks borrow offshore) out of benevolence, they do it for opportunity. One economist’s “reliant on foreign capital” is another economist’s “an attractive investment destination”.

  11. Ian Radbone February 2, 2018 at 8:04 AM #

    As a patriotic Aussie, this article is “going straight to the pool room”. But a couple of caveats:
    I notice in the Global Wealth Report that Switzerland also has a higher median wealth than Australia. Presumably the median wealth holder is not a “tax resident”.
    Second, travelling in Northern Europe, I’m impressed by how wealthier their cities often look compared with ours. The quality of the infrastructure and urban design looks better. I guess the wealth that they channel into the public realm is not captured in statistics such as the Gini co-efficient. On the other hand, perhaps they can afford better quality in their cities simply because they are higher density: there are more taxpayers per square mile.
    As well as our beaches, we also have space.

    • Miles Staude February 5, 2018 at 12:37 AM #

      Thanks Ian, I’ll take the pool room comment as high praise!

      Regarding my point about Swiss “tax residents”, what I was trying to capture was that my (admittedly slightly cynical) view is that the Swiss “average” wealth figures are probably distorted given Switzerland is a well-known tax haven for the wealthy. Whether this effect also distorts the “median” wealth figures is an interesting counterpoint. I suspect it does, but to a far lesser degree. (Note, I don’t have the data available to show see whether or not such assumptions are true).

  12. Miles Staude February 2, 2018 at 10:14 AM #

    Having recently spent some time again in Australia, the thing that continues to strike me the most is just how well the country is doing, and how little time the commentariat spends reflecting on this success.

  13. Chris Jankowski February 2, 2018 at 6:24 PM #

    Miles article is true in the description of what Australia achieved. Bravo.

    However, it is worth pointing that no country can become complacent, as its wealth will dissipate quickly when mismanaged.

    My favorite example is Argentina, which was one of the richest countries in the world 100 years ago and with a huge potential. Then they blew it.

    Also, the world is changing very fast and Australia needs to adjust. This process does not seem to be going too well.

    For example, Australia suffers from the inability to develop and grow large scale high tech businesses. These businesses are typically complex, employ many highly skilled workers, grow fast and deliver high margins i.e. increase national wealth quickly.

    Australia has great supply of young graduates (we can afford to educate them), but very many of them cannot find employment matching their education and ambitions. So, we have the capital, human resources, legal and political systems; we are part of the English speaking world, but still no success in building high tech businesses.

    • Miles Staude February 5, 2018 at 12:44 AM #

      Thanks Chris, I agree we can’t get complacent!

  14. Patrick February 4, 2018 at 1:55 PM #

    Hi Miles, the expression Australia felix (otherwise the lucky country) can be traced back to 1824. https://trove.nla.gov.au/list?id=73986

    • Miles Staude February 5, 2018 at 12:46 AM #

      Interesting Patrick, thanks for sharing

  15. AlanB February 12, 2018 at 4:00 PM #

    Miles – with so much concocted negativity and pessimism in daily media reports it is refreshing to read your article. A long time ago when I studied economics the ideal economy would have been one with low unemployment, low inflation, low interest rates, low crime, low political instability, high net wealth, high home ownership and most importantly high (relative) wealth equality. We have achieved all of that. These are the best of times. I am going to forward your article on to my 16 year old son who has just started an economics course.

  16. Mike February 25, 2018 at 8:20 PM #

    It’s a very positive article. However, education is a large export in Australia only because it provides an opportunity for overseas students to become a permanent resident. The quality of a lot of the education is very poor. In many cases former students end up working as taxi drivers. You would be surprised how many cabbies have master degree.

    Infrastructure in the cities is really poor comparing to European capitals. There is still no subway in Sydney and Melbourne and no high speed rail across the country. So It doesn’t feel that bright unfortunately.

  17. AmelieDarley March 27, 2018 at 8:31 PM #

    Great article.

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